Thursday, September 13, 2012

Unions Agree To Hudson Yards Labor-Cost Deal

After months of tense negotiations, the Related Cos. and the city's construction unions have agreed in principle to a series of cost-saving measures that will help push the $15 billion Hudson Yards mega-project forward and ensure that it is built with union labor. Hudson Yards is the biggest development project in the city since Rockefeller Center was built in the 1930s. Some 13 million square feet of construction is planned for the 26-acre site, creating an estimated 39 million "man-hours" of work.

Some four dozen unions covering more than a dozen trades agreed to cut wage and benefit packages and change work rules in order to grab a piece of a massive construction project that could keep their members working for at least 10 years.

The overall deal, known as a project labor agreement, is not yet final, but last week, District Council of Carpenters delegates voted to approve a 10% wage and benefit reduction for work on Hudson Yards, the last of the participating unions to agree to help Related control costs.

"We're not done, but we've made the final turn," said Paul Fernandes, chief of staff of the Building and Construction Trades Council of Greater New York. "Everyone has done in their own way things that are very substantial, not just nickel-and- dime stuff, but substantial changes to both the way they're compensated and the way they work on projects."

The missing piece now is the operating engineers who run the cranes that are crucial to major construction projects. The union does not sign project labor agreements; although it is possible that a separate understanding could be forged with Related.

The project labor agreement covers the first half of the Hudson Yards project: two large commercial buildings, a residential skyscraper, a mixed-use tower and a retail complex encompassing about 8 million square feet on the eastern rail yards. Both sides expressed optimism that a further deal will be worked out when construction is ready to begin on the remainder of the project.

Both Related executives and leaders of the Building and Construction Trades Council approached the negotiations with a singular focus, with Related Chief Executive Stephen Ross and council president Gary LaBarbera personally engaging in the talks.

Related needed cost savings to help make Hudson Yards affordable to tenants and competitive with commercial buildings being constructed in lower Manhattan. With the first building—a 46-story tower to house the corporate headquarters of retailer Coach—slated to start rising in the fall, time was running out for a deal.

Organized labor had a major incentive to make a deal, with some trades facing unemployment levels of 25% or higher. Hudson Yards is the biggest development project in the city since Rockefeller Center was built in the 1930s. Some 13 million square feet of construction is planned for the 26-acre site, creating an estimated 39 million "man-hours" of work.

"The dollar costs, what they're spending to build it, the amount of time, the construction jobs, the number of carpenter hours—they're all huge," said Mike Bilello, executive secretary-treasurer of the District Council of Carpenters. "There was a prospect of putting a lot of our members to work, and its real now.

It's a good deal for our members." Mr. Fernandes compared the discounts being offered by the unions to those a shopper would get at a warehouse store. "When you walk into Costco and buy three months of groceries, you pay a lot less than when you're buying a week's worth," he explained."

Related puts nearly 8 million square feet of construction on the table for the first phase of the project, plus all the other work associated with people moving into the buildings, when you buy in bulk you sometimes get a better deal."

Related drove a hard bargain in the negotiations and threatened to build some of the project non-union if it did not get the savings it needed. In one instance, it decided to build the Coach headquarters with reinforced concrete instead of steel, a move that sent a signal to ironworkers that they needed to get on-board.

Some 80 meetings were held in the past few months, and there were an uncountable number of phone calls, conference calls and exchanges of documents via email in what Mr. Fernandes called a "fully consuming process."

On nearly two dozen occasions, Mr. Ross made personal appeals to leaders of various unions to let them know that the project would not be feasible in the current market unless they served up significant savings. At one point this spring, momentum temporarily stalled. Related had one-on-one conversations with just about every union leader involved to help jump-start talks.

Related also made it clear it was not just asking for savings from the union; it was hustling to increase efficiencies on its end as well.

The company changed its bidding system for subcontractor work, eliminated intermediaries from its procurement process and streamlined its management structure.

"Both sides had to change the approach to how it is we promote development that uses union labor in this city," Mr. Fernandes said, "particularly given the current set of financial and economic challenges, which don't appear to be going away anytime soon."